Top managers of are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision: Total Blue-Ray Discs DVD Discs
Sales Revenue $432,000 $305,000 $127,000
Variable Costs $246,000 $150,000 $96,000
Contribution Margin $186,000 $155,000 $31,000
Fixed Costs:
Manufacturing $128,000 $71,000 $57,000
Selling and Administrative $67,000 $52,000 $15,000
Total Fixed Costs $195,000 $123,000 $72,000
Operating Income (loss) $(9000) $32,000 $(41,000)

Total fixed costs will not change if the company stops selling DVDs.

Required:
a. Prepare a differential analysis to show whether Movie Street should drop the DVD product line.
b. Will dropping DVDs add $41,000 to the operating income? Explain.

a)

                               Blue-ray discs       Blue-ray discs         Differential

                               and DVD discs      only                          amount

Sales Revenue           $432,000             $305,000             $127,000

Variable Costs           ($246,000)           ($150,000)            ($96,000)

Contribution M.           $186,000              $155,000              $31,000

Fixed Costs:

Operating Income         ($9000)              ($40,000)             $31,000

b) Will dropping DVDs add $41,000 to the operating income?

No, dropping the DVDs product line will decrease operating income by $31,000, resulting in a total loss of $40,000. Even though the DVDs product line by itself is not profitable, it absorbs a large percentage of the fixed costs and if you get rid of it, all the fixed costs will be absorbed by the Blue-rays product line.

steering wheels are always situated on the left side of the car.

always drive on the right side of the road.

white lines separate lanes of traffic traveling the same direction.

hashed or broken lines means you may change lanes when it is safe.

solid white lines mean stay in your lane.

yellow lines separate traffic moving in opposing directions.

hashed or broken yellow lines mean you can carefully pass, paying attention to oncoming traffic.

never cross a solid yellow line (or double yellow line).

when turning left at an intersection, pass in front of any cars that are turning left from the opposing direction (do not try to pass behind them).

use the left lane to pass other cars traveling your direction.

do not pass in the right lane unless absolutely necessary.

if you are driving in the far left hand lane and someone would like to pass you, move over to the right lane when it is safe to do so and allow them to pass.

you must always yield to pedestrians.

come to a complete stop whenever you see pedestrians trying to cross the street.

never pass a school bus if it has flashing red lights. wait until the lights have stopped.

be aware of bicyclists. often they share the road with cars and are supposed to also follow general traffic laws.

be particularly careful about driving in cities with bike lanes -- always check before turning that a bike is not coming.

it is mandatory to pull over or stop at an intersection to allow an emergency vehicle to pass you if you see one traveling with lights flashing and/or a siren running.

do not overuse your car horn. horns are used almost exclusively for emergency situations or for when you feel unsafe.

explanation:

answer; the correct answer should be (demonstrations); good luck